BILL ANALYSIS Ó
AB 1098
Page 1
Date of Hearing: April 23, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 1098 (Quirk-Silva) - As Amended: March 21, 2013
SUBJECT : Office of Small Business Advocate: regulations: report
SUMMARY : Requires the Office of the Small Business Advocate (OSBA)
to commission a study regarding the costs of state regulations on
small businesses, as specified. Specifically, this bill :
1)Makes findings and declarations that, among other things, the
federal Small Business Administration (SBA) has been studying the
cost of regulations on small businesses since 1995, in 2010 the
annual cost of federal regulations in the U.S. was $1.75 trillion,
the cost of regulations to businesses with less than 20 employees
was $10,585, and the financial burden on small businesses is more
burdensome than for large businesses.
2)Requires the state Small Business Advocate to commission a study on
the cost of state regulations on small businesses. The study is
required to do the following:
a) Parallel, to the extent feasible and practical, the study
conducted by the federal SBA.
b) Examine successful models from other states, identify
regulatory costs and develop potential alternative approaches to
meeting the same regulatory objectives with less burden to small
businesses.
3)Requires the Small Business Advocate to convene a small business
stakeholder committee to provide advice on the study, as specified.
4)Requires the study to be completed by January 1, 2015 and updated
every five years.
EXISTING LAW :
1)Finds and declares that it is in the public interest to aid,
counsel, assist, and protect the interests of small business
concerns in order to maintain a healthy state economy.
2)Establishes the OSBA within the Governor's Office of Business and
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Economic Development for the purpose of advocating for small
businesses including responding to complaints from small businesses
concerning the actions of state agencies and the operative effects
of state laws and regulations.
3)Finds and declares that there has been an unprecedented growth in
the number of administrative regulations in recent years and that
correcting the problems requires the direct involvement of the
Legislature, as well as the executive branch of state government.
Further, statute finds and declares that the complexity and lack of
clarity in many regulations put small businesses, which do not have
the resources to hire experts to assist them, at a distinct
disadvantage.
FISCAL EFFECT : Unknown
COMMENTS :
1)Framing the Policy Issue : This measure calls for an update to the
state study on the costs of state regulations on small businesses.
In hearings on the California economy held by the Assembly Committee
on Jobs, Economic Development, and the Economy (JEDE) businesses
have repeatedly testified that California's regulatory process is
expensive, overly burdensome, and that compliance has not
necessarily provided a better quality of life for the people of
California.
In making the case for a current study, Members may want to consider
that the federal SBA has conducted similar studies for the past
years, yielding important information that can guide better
contracting and regulatory policies. This analysis provides
information on the role of small businesses within the California
economy, previous federal and state studies, the state and federal
rule-making processes, and related legislation. Suggested
amendments are discussed in comment 5.
2)The role of Small Business within the California Economy : Business
owners, with no employees make up the single largest component of
businesses in California, 2.8 million out of an estimated 3.5
million firms in 2010. As these businesses grow, they continue to
serve as an important component of California's dynamic $1.9
trillion economy. Microenterprises, meaning businesses with less
than five employees represent approximately 93% of all businesses in
the state, or approximately 3.2 million of all businesses.
Businesses with 99 or less employees comprise nearly 98% of all
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businesses and employee approximately 38% of all workers.
These non-employer and small employer firms create jobs, generate
taxes, and revitalize communities.
In hard economic times, smaller size businesses often function as
economic engines. In this most recent recession this trend
continued, with the number of nonemployer firms increasing from 2.6
million firms ($137 billion in revenues) for 2008 to 2.8 million
firms ($138 billion in revenues) for 2010. In the post-recession
economy, these businesses are expected to become increasingly
important due to their ability to be more flexible and better suited
to meet niche market needs.
However, their small size also results in certain challenges in
meeting regulatory requirements. A larger size business may have
the option of assigning one or more persons to learn about new
regulations, attend special classes to obtain certifications, and
pull together required paper work. Small businesses, however, are
more dependent on contracting for these specialized services,
learning about new requirements from trade association newsletters,
and sometimes getting fined because they were just not aware of a
new rule. Understanding how regulations financially affect small
businesses is an important component of understanding the California
economy.
3)Small business studies : There are two major sources of data on the
cost of regulatory compliance on businesses, the federal SBA and the
state OSBA. For the last 10 years, the federal SBA has conducted a
peer reviewed study that analyzes the cost of federal government
regulations on different sizes of businesses. This research shows
that small businesses continue to bear a disproportionate share of
the federal regulatory burden. On a per employee basis for firms
with less than 20 employees, it costs about $10,585, or 36%, more
for small firms to comply with federal regulations than their larger
counterparts.
In the federal peer reviewed study, the most costly regulations for
small businesses were found to be environmental compliance where
small business costs were 364% higher than in large-size firms. The
regulatory category with the least disproportionate cost impact
between large and small businesses related to occupational safety
and health and homeland security.
The impact of California regulations on small businesses was unknown
until 2009, when the study required by AB 2330 (Arambula), Chapter
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232, Statutes of 2006, was published by the OSBA. Although state
agencies have been required to consider the costs of adopted
regulations on the California economy, in general, and on small
business specifically, state agencies have historically failed to
meaningfully undertake such an analysis, and instead, have indicated
that the need for the regulation was an overriding state concern.
This first state study found that total cost of regulations to the
State of California was $493 billion. Since small businesses
constitute 99.2 % of all employer businesses in California and all
of non-employer business, the regulatory cost, according to the
report, is shouldered substantially by small business (averaging
$134,123.00 per small business in 2007).
4)Adoption of regulations in by federal and state governments :
Existing federal and state laws sets forth extensive processes for
the development and adoption of regulations, including requiring the
identification of potential adverse impacts on businesses and
individuals.
California law specifically states that the purpose of the
rulemaking process is to avoid the imposition of unreasonable and
unnecessary regulations, reporting, recordkeeping, or compliance
requirements. Businesses, however, have repeatedly testified before
this policy committee that they believe that California's regulatory
process is expensive and overly burdensome. One of the criticisms
of the process has been that the Office of Administrative Law has no
real authority to ensure that the intent of the law is enforced
because its oversight is limited to a procedural review. Other
criticisms have included that regulations are developed without
adequate regard to their cumulative impact or challenges faced by
small versus large companies.
In contrast, federal rule-making is monitored by the Federal Office
of Advocacy (FAO) within the SBA for the purpose of protecting,
strengthening and effectively representing the nation's small
businesses within the federal government's legislative and
rule-making processes. Among its duties, the FAO is an official
watchdog for the Regulatory Flexibility Act and reviews federal
regulations and makes recommendations on how to reduce the burden on
small firms and maximize the benefits small businesses can receive
from the federal government. California's OSBA is not staffed nor
statutorily dedicated to this level of regulatory engagement.
In 2012, the FAO issued 29 letters to federal agencies on a range of
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rulemaking problems including, but not limited, to the National
Toxicology Program, Board of Scientific Counselors; The Truth in
Lending Proposed Rule, the U.S. Treasury; and the Repair Stations
Rule, Federal Aviation Administration. According to the SBA, the
FAO's work with agencies to reduce the potential regulatory burden
saved small firms more than $2.4 billion in new regulatory costs.
In January 2011, President Obama signed Executive Order 13563 (EO)
for the purpose of further improving regulation and regulatory
review. Among other factors, the EO stated that the federal
regulatory system must adopt regulations that impose the least
burden on society, while still achieving policy objectives;
developing rules through an open exchange of perspectives from
affected stakeholders in the private sector (among others); and
promoting the use of retrospective analysis on impacts of previously
adopted regulations.
In California, there is no "watchdog" agency and a rulemaking entity
is not required to construct alternatives or independently seek
small business recommendations. State legislation designed to level
the playing field has been repeatedly held at various points in the
legislative process. Several of these bills are described under
"Related Legislation."
5)Technical amendments : The author may want to consider:
a) Defining small business and asking for data on a range of
small business sizes including nonemployer businesses, business
with five or fewer employees, 99 or fewer employees and under
500 (federal definition).
b) Specifying that the recommendations not diminish wage and
hour, social insurance, or health and safety protections for
California workers.
c) Changing the submittal of a report to the posting of the
information on the OSBA's website and the provision of notice to
the Legislature.
d) Requiring that the completion of the report be dependent upon
GO-Biz receiving private funding.
6)Related Legislation : Below is a list of related legislation.
a) AB 1037 (V. Manuel Pérez) Small Business Regulatory Reform :
This bill would have removed statutory barriers that inhibit the
full consideration of the impacts of state rules and regulations
on the economy, including the small business sector, and requires
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a review of all regulations on small businesses after five years
to identify opportunities to mitigate negative impacts. Status:
Held on the Suspense File of the Assembly Committee on
Appropriations in 2011.
b) AB 1409 (V. Manuel Pérez) Small Business Regulation Reforms :
This bill would have modified the state rulemaking process to
require state agencies to consider alternative small business
compliance mechanisms. Rulemaking agencies would also have been
required to consider whether there are opportunities to
coordinate or harmonize compliance activities with other state
entities with similar or related rules. Further, the bill
encouraged the Small Business Advocate to solicit comments from
small businesses on proposed regulations and make recommendations
on reasonable alternatives as part of the rulemaking process.
Status : Held in the Senate Committee on Rules in 2012.
c) AB 2330 (Arambula) Small Business Regulation Study : This bill
required the OSBA to commission a study on the costs of state
regulations on small businesses. Status: Signed by the
Governor, Chapter 232, Statutes of 2006.
d) AB 2692 (Tran and V. Manuel Pérez) Small Business Reforms :
This bill would have directed the California Small Business Board
(Board) to focus for the next two years on, among other items,
the impact of licensing and permitting regulations on small
business startups. Status: Held on the Suspense File by the
Assembly Appropriation Committee in May 2010.
e) SB 356 (Wright) Impact of Regulations on Small Businesses :
This bill would have required an agency considering the adoption
of a regulation to consult with those persons and businesses
potentially affected and would delete the condition that the
agency only involves those parties, if the proposal is large or
complex. Status: Passed the Assembly Committee on Business
Professions and Consumer Protection and was referred to the
Assembly Committee on Rules where it remained until the close of
the 2009-10 Legislative Session.
REGISTERED SUPPORT / OPPOSITION :
Support
California Small Business Association (sponsor)
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Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090